MSA

Card Set Information

Author:
ED_6C3
ID:
270367
Filename:
MSA
Updated:
2014-04-12 20:00:20
Tags:
6C
Folders:
P&C-1 Calculation
Description:
6C
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  1. Interpretation of regulatory tests results
    • most companies fail some ratios without being a sign of distress; view as a whole
    • ratios are not conclusive evidence of insolvency risk or lack thereof
    • MSA ratios are applied to all companies regardless of whether they are federally licensed
  2. Calculating Net Income
    • Sum of Underwriting Income and Investment Income
    • = Net EP - expenses - net claims incurred + net investment income
  3. Calculating Adjusted Equity
    • assets (bonds, debentures, shares, recoverables, receivables)
    • - liabilities (unpaid L&LAE, UEP, reserves required)
    • = GAAP Equity - capital required for catastrophes and unregistered reinsurance
    • = Previous year Equity + NI - capital required for cat and unregistered reinsurance
  4. Capital ratio
    MCT/BAAT: total capital (assets) available / required capital (margin); min = 150%
  5. Return (UW + Inv) on…
    • Equity: shareholder’s return; look for sustainability; min = 5.4%
    • Revenue: GWP; income relative to revenue generating capacity min = 6.2%
    • Net EP: core earning capacity of insurer; min = 4%
    • Assets after Tax: (average); ability to generate income from asset base min = 2.6%
  6. Equity ratios
    • Leverage Ratio: (NWP + Net Liabilities) / Equity; max 500% 
    • Net UW Leverage Ratio: NWP / Equity; max 300%
    • Net Loss Reserves to Equity: max = 200%
    • One-Year Development to Equity: min = -10%
    • Reinsurance Recoverable to Equity: measures dependence on reinsurance
    • AOCI to Equity (Accumulated other Comprehensive Income)
  7. Year-by-year change
    NWP / GWP / Equity
  8. Other ratios
    • Investment Yield: 2 (NII + OCI) / (Assetb + Assete - NII  - OCI); min 6% 
    • Two-Year Combined Ratio
    • Cash Flow from Operations to NWP: min = 0%
    • Liabilities as % of Liquid Assets: max 105%
    • Overall Diversification Score: LOB diversification (1-10) x Geo diversification (1-10); well-diversified companies score 65 and higher

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